Proposition 1C changes lottery and more

Risk to budget seen with Proposition 1C

SACRAMENTO 
Like the lottery games it promises to change, Proposition 1C looks to be a bit of a gamble.

The measure could deliver $5 billion to help close the state's staggering $42 billion budget gap. At the same time, it would ease long-standing rules that some believe have held back the 25-year-old state lottery.

Within a few years, however, Proposition 1C may only make the state's financial problems worse, the nonpartisan Legislative Analyst's Office has warned.

The proposition, one of six budget-related measures on the May 19 ballot, would do away with the lottery's direct link to schools that now receive a set percentage of the proceeds. Instead, the money would go to the state's general fund.

In return, schools would be guaranteed that amount from the general fund, but it would grow at a higher rate over the years.

“In order to come up with a short-term benefit to the general fund without putting a bigger burden on taxpayers, there will be a long-term benefit to education,” said Loren Kaye, president of the California Foundation for Commerce and Education, a research group affiliated with the state Chamber of Commerce.

“That's not the worst thing in the world, to have a long-term benefit to education,” Kaye said. “After all, that's what the lottery was designed to do in the first place.”

But the proposition has raised other questions about the wisdom of borrowing against the lottery and revamping its games to spur more gambling in a state where the industry ranks a close second to Nevada's.

“We believe it is bad fiscal and public policy,” said Janis Hirohama, president of the nonpartisan League of Women Voters, which opposes the measure.

Hirohama said bond financing is appropriate for infrastructure needs but “not to fill part of a budget deficit.”

James Butler, executive director of the California Coalition Against Gambling Expansion, said the proposition's success depends on more gambling.

“When gambling expands, so do the problems associated with it, including crime, homelessness, unemployment,” Butler said.

California voters approved the lottery in a 1984 initiative that set strict bounds for its proceeds – at least 50 percent must be paid back in prizes, 34 percent must go to schools and no more than 16 percent may be spent for operations and overhead.

But lottery sales have been sliding since peaking at $3.6 billion three years ago. Amid the slump, the Schwarzenegger administration began exploring proposals to privatize the operation.

That evolved into Proposition 1C, which would securitize the lottery's profits, and use that money to pay off bonds, at least $5 billion initially with the option to sell more in later years.

Gov. Arnold Schwarzenegger's aides said the $5 billion was necessary to strike a budget compromise that included $15 billion in cuts and $12.5 billion in tax increases.

“This is the lowest-cost capital that the Legislature and the governor could come up with to close that last $5 billion hole,” said David Crane, a senior adviser to the governor. “But it only happens in the context of budget reform, which is the key.”